ANZ update fires up bank stock expectations

ANZ’s cash profit rose to $1.73 billion, or 13 per cent, for the three months to December 31. Although the result was broadly in line with expectations, analysts said they were surprised by the low level of bad debts.
Photo: Glenn Hunt

by
Jared Lynch

A solid profit update from
ANZ Bank
fuelled a rally among the big banks, leading the Australian sharemarket higher.

The benchmark S&P/ASX 200 Index rose 32.35 points, or 0.6 per cent, to 5254.5 points as investors shifted their gaze to the performance of domestic companies.

The gains came as business conditions soared to a three-year high, led by an improving manufacturing sector. This helped push the Australian dollar above US90¢ for the first time in a month, ­following the release of National ­Australia Bank’s business survey.

Not even a technical glitch, which shut down the ASX for about 30 minutes, soured the mood of investors.

The top four banks were among the best performers, after ANZ’s profit update lifted expectations for earnings in the sector.

“You could say that ‘yes [ANZ’s] profit number was assisted by a further ­windback of bad debt expense’. But if it’s ­happening with them, there’s a fair chance that it’s happening with the ­others," Mr Farnham said.

ANZ’s shares rose 0.7 per cent to $30.56.

Mr Farnham said investors were now eagerly awaiting the results of the biggest company on the ASX, Commonwealth Bank, which will be released on Wednesday.

“I think it’s fairly certain that they will be delivering a nice, juicy profit of above $4.1 billion for the half."

Insurer
QBE
also had a good day, ­leaping 3.6 per cent to $11.59. The catalyst for its rally appeared to be an upgrade to “buy" from UBS’s influential analyst James Coghill, who put a 12-month price target of $13 on the stock.

The gains in the big four and QBE helped offset hefty losses from ­companies that posted lacklustre results.

Macquarie lost 3.8 per cent to $35.52. Although it reiterated its full-year ­earnings guidance, saying that 2014 will be better than the previous year, the investment bank cautioned that merger activity continued to be subdued and trading activity mixed.

Investors punished medical device maker
Cochlear
after its interim net profit plunged 73 per cent to $21 million due to cash put aside for a patent dispute. Cochlear’s shares sank 8.9 per cent to $53.68.

Mr Farnham said while ASX company results were steering the market, which shrugged off weak leads from Wall Street, there was an “elephant in the room": the new US Federal Reserve chief.

Janet ­Yellan
was set to make her first testimony before­ ­legislators overnight on Tuesday, AEST, and investors were looking for hints as to whether she’ll continue winding down the central bank’s asset-buying program, which­ ­currently stands at $US65 billion a month.

St George economist Janu Chan said Ms Yellen was one of the more dovish members of the Fed board, despite voting for tapering, which was creating uncertainty.

Ms Chan said the Fed could pause ­in reeling in its stimulus, given the run of soft jobs data this year, but that was unlikely. “[The poor employment figures are] a bit out of step with activity ­indicators, which have been holding up reasonably well."

Engineering group Bradken ­plummeted 9.4 per cent to $4.72 after its half-year net profit fell 18.5 per cent to $38.1 million.

“It’s the same old, same old with all these mining services guys. The music is not playing as loudly as it has in the past in terms of their business operations," Mr Farnham said.